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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: frankw1900 who wrote (21267)	3/13/2002 9:22:02 AM
From: Ilaine	Read Replies (3) \| Respond to of 281500

The problem with arguments about trade, IMO, is that they tend to be abstract. You brought up 1930, and I've been reading Pat Buchanan on 1930 - Buchanan is wrong, and you are right, if you don't mind a bit of a lecture. The Smoot-Hawley tariff of 1930 wasn't the first tariff to contribute to the Great Depression. That would be Fordney-McCumber, 1922. The economic events which culminated in the Great Depression were long and slow. Hard to see, harder to avoid, harder still to get out of. Returning to the gold standard by the combatant nations of WWI at pre-war parity began in 1922 and was essentially completed by 1928. Central banks removed non-convertible paper from the money supply and replaced it with gold and convertible paper. The money supply was forcibly reduced in order to return to pre-war parity. This caused massive deflation, which caused nominal debts to be worth more in real terms, nominal interest rates to be higher in real terms, and nominal commodity prices to be less. This particularly hurt farmers and commodity sellers. Agrarian nations and nations which depended on the sale of commodities for income got a double whammy, first by the deflation, then by the tariffs. Great Britain, an industrial nation, also suffered massive unemployment because the dollar-pound parity was set too high, which meant that prices in Great Britain were at least 10% too high, and so it was hard to sell British goods. US tariffs made it hard for the nations which financed WWI by borrowing, England, France, Belgium, by borrowing from the US, and the nation which financed reparations by borrowing from the US, Germany, to repay those debts in US dollars, so they were forced to repay in gold. However, removing gold from their money supply reduced the required reserves of their central banks, which further reduced their money supply, which caused further deflation and recession. Meanwhile, in the US, the money supply is growing until 1928 because we never went off the gold standard, and all the gold is coming here. So we aren't experiencing deflation like it is being experienced elsewhere. [In 1928 the Fed started trying to put the brakes on the stock market, but that's another story.] [The US had more than half the world's gold but did not inflate the money supply accordingly, but that's yet another story.] Our farmers and commodity producers can't sell as cheap as foreigners who are 1) experiencing deflation, and 2) desperate, so resorting to dumping just to get dollars. US farmers, miners, lumberers, and other commodity producers are getting eaten alive by high nominal debt and low real returns. Banks start failing in the hinterlands. US producers demand that the government DO something - and the response is Smoot-Hawley. A contemporary economist likened the position of nations like Germany to that of a man who has a noose around his neck pulling him (obligation to repay dollars borrowed from the US to pay reparations) and a pitchfork at his chest (tariffs which won't allow him to sell his goods for dollars). Germany was at that time the world's second largest GDP, not Great Britain. Actually all the nations in Europe which borrowed from the US to finance WWI were in the same position. And all the other nations which needed to sell to the world's largest economy were also unable to do so. And so we had massive unemployment and recession in the rest of the world as well as bank failures in the hinterlands of the US long before Wall Street ever noticed anything. Smoot-Hawley was just the icing on the cake. This is, IMO, the major problem with tariffs. The consequences are unforeseeable. Also, other countries which have lower prices may well be in dire straits themselves, so tariffs further destabilize them, which isn't a good idea if you want them to be a market for your own goods.

To: frankw1900 who wrote (21267)	3/13/2002 3:01:08 PM
From: craig crawford	Respond to of 281500

>> Like, in 1930? << Refuting the Global Mandarins buchanan.org Let me try to sort out this rag-bag of non sequiturs. The Senate rejected Versailles in 1919. Harding took power in 1921 on a promise to "prosper America first." He cut Wilson's wartime income tax rate of 63% back to 25% and, with Fordney- McCumber, doubled tariff rates. Result: The Roaring Twenties. Growth hit 7% a year, fastest in history; and ten years later Versailles America was producing 42% of the world's manufactures, an all-time record. As for the Smoot-Hawley myth, Prof. Odom should put in a call to Milton Friedman. When Smoot-Hawley passed, imports were only 4% of GDP; and two-thirds came in free. Perhaps Prof. Odom can explain how a marginal tax hike, on 1.3% of GDP, caused a 46% contraction of the U.S. economy, 25% unemployment, and a wipeout of 85% of stock values? The cause of the depression was massive credit expansion by the Fed, creating a market bubble that, punctured in 1929, wiped out a third of the U.S. money supply. With America in shock from this loss of blood, a pair of chiropractors named Hoover and Roosevelt prescribed a "cure" of huge tax hikes and sweeping regulations. Smoot and Hawley were scapegoats, lynched by New Deal court historians to cover up FDR's complicity. Their tariff did not even pass until eight months after the 1929 Crash. ............................................................................................................................ Prof. Odom rejoices that countries are lining up to sign on to globalization. Why shouldn't they? To them it means an open door to the greatest market on earth, and U.S. capital pouring into their countries to build new factories to replace plants shutting down across the U.S. Our merchandise trade deficit is near 5% of GDP; it has crossed the $450 billion mark. We are following faithfully the course pursued by all the great empires of history: consuming more than we produce; selling off our patrimony to finance the good times. Carpe diem remains the road to hell for nations as well as individuals. Prof. Odom calls me a Jeffersonian agrarian. Has he read my book? My ideas are rooted in the economic nationalism of Washington, Hamilton, the Madison of the Tariff of 1816, Henry Clay, Friedrich List, Lincoln and the Republicans who, from 1865 to 1914, took the U.S. from half of Britain's manufacturing power to more than double her power -- a 50-year period where growth rates averaged 4%, with bursts under McKinley up to 7%. They all put America first. As Hamilton insisted, U.S. trade policy should be designed to ensure the highest standard of living on earth for the American people, and the economic independence of the nation, so that, if need be, America could stand alone. Only thus could we stay out of Europe's wars.